-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UCez63iNpcWdEj6Ebwo9lCOf2r4FwWSEvsJoR9liSDH3nKT+K70t8jREKOVkz9aY +RwrzPSEXXtuS+YVEfkf6g== 0000898430-98-001881.txt : 19980514 0000898430-98-001881.hdr.sgml : 19980514 ACCESSION NUMBER: 0000898430-98-001881 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMA RIDE INC CENTRAL INDEX KEY: 0000925956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 954417467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24592 FILM NUMBER: 98618190 BUSINESS ADDRESS: STREET 1: 12001 VENTURA PL STREET 2: STE340 CITY: STUDIO CITY STATE: CA ZIP: 91604 BUSINESS PHONE: 8187611002 MAIL ADDRESS: STREET 1: 12001 VENTURA PL #340 CITY: STUDIO CITY STATE: CA ZIP: 91604 10QSB 1 QUARTERLY PERIOD ENDED MARCH 31, 1998 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-QSB (MARK ONE) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to__________ Commission File Number 0-24592 --------- CINEMA RIDE, INC. --------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-4417467 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12001 VENTURA PLACE, SUITE 340, STUDIO CITY, CALIFORNIA 91604 (Address of principal executive offices) (818) 761-1002 (Registrant's telephone number, including area code) ................................................................................ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or give such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- As of May 11, 1998, there were 5,854,572 outstanding shares of common stock, par value $0.01 per share. Transitional Small Business Disclosure Format: Yes No X --- --- CINEMA RIDE, INC. AND SUBSIDIARIES INDEX TO FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1998 ========================================== PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Balance Sheets as of March 31, 1998 and as of December 31, 1997. 3 Statements of Operations for the three months ended March 31, 1998 and March 31, 1997. 5 Statements of Cash Flows for the three months ended March 31, 1998 and March 31, 1997. 6 Summary of Accounting Policies 8 Notes to Financial Statements. 10 Item 2. Management's Discussion and Analysis or Plan of Operation 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1998, AND DECEMBER 31, 1997 ======================================== ASSETS
March 31, December 31, 1998 1997 -------------- ------------- (unaudited) (audited) Current assets: Cash $ 718,230 $ 705,630 Inventories 14,925 21,614 Prepaid Expenses 48,152 69,601 Receivable from Times Square Landlord (Note 1) - 500,000 Assets to be disposed - short-term (Note 1) - 1,490,915 Other Receivables 18,874 852 ---------- ---------- Total current assets 800,181 2,788,612 ---------- ---------- Property and equipment: Office Equipment and furniture 105,131 106,938 Equipment under capital lease 139,474 139,474 Leasehold improvements 942,921 943,873 Theater and film equipment 1,642,391 2,953,259 Theater and film equipment available for use 1,767,480 564,432 ---------- ---------- 4,597,397 4,707,976 Less accumulated depreciation and amortization (1,128,137) (1,226,811) ---------- ---------- Total property and equipment (net) 3,469,260 3,481,165 Film library: Film projects under development - 316,387 Film library, net of accumulated amortization of $502,246 and $460,714. 582,056 299,651 ---------- ---------- Total film library, net 582,056 616,038 ---------- ---------- Assets to be disposed - long-term (Note 1) - 161,629 Receivable from officers (Note 5) 84,418 47,962 Consulting agreement (Note 5) 46,819 49,420 Deferred lease costs and other assets (net) 184,390 283,713 ---------- ---------- Total assets $5,167,124 $7,428,539 ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements 3 CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) MARCH 31, 1998, AND DECEMBER 31, 1997 ========================================== LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31, 1998 1997 ------------ ------------- (unaudited) (audited) Current liabilities: Accounts payable and accrued expenses $ 320,933 $ 539,006 Current portion of capital lease obligation (Note 4) 16,698 58,641 Current portion of notes payable to lender (Note 2) 335,127 322,286 Deferred Lease Termination (Note 1) - 1,490,915 Note payable to bank (Note 2) 10,879 10,568 ----------- ----------- Total current liabilities 683,637 2,421,416 ----------- ----------- Obligation under capital lease (Note 4) 77,544 300,819 Note payable to bank (Note 2) 8,056 11,576 Note payable to lender (Note 2) 805,338 894,098 Deferred rent 126,520 137,617 ----------- ----------- Total long term liabilities 1,017,458 1,344,110 Total liabilities 1,701,095 3,765,526 Commitments and contingency (Note 2) Stockholders' equity Preferred stock, $.01 par value, 500,000 shares authorized, none issued - - Common stock, $.01 par value, 20,000,000 shares authorized, 5,854,572 and 5,802,785 shares issued and outstanding 58,546 58,028 Additional paid-in-capital 9,175,780 9,173,191 Treasury Stock, at cost, 51,786 and 51,786 shares at March 31, 1998 and December 31, 1997 respectively (29,000) (29,000) Accumulated deficit (5,739,297) (5,539,206) ----------- ----------- Total stockholders' equity 3,466,029 3,663,013 ----------- ----------- Total liabilities and stockholders' equity $ 5,167,124 $ 7,428,539 =========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997 ============================================================= (UNAUDITED)
Three Months Three Months Ended Ended March 31, March 31, 1998 1997 ------------- ------------- Revenues $ 623,064 $ 869,795 Selling, general and administrative expenses 653,934 949,812 Depreciation and amortization 171,204 330,997 ---------- ---------- Total expenses 825,138 1,280,809 ---------- ---------- Loss from operations (202,074) (411,014) ---------- ---------- Other income (expense) Other Income 56,413 - Interest expense ( 67,054) (226,486) Interest income 7,294 2,679 ---------- ---------- Net loss $ (205,421) $ (634,821) ---------- ---------- Net loss per common share $(0.04) $(0.11) ========== ========== Weighted Average common shares outstanding 5,837,310 5,786,785 ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 & MARCH 31, 1997 ================================================== (UNAUDITED)
Three Months Three Months Ended Ended March 31, March 31, 1998 1997 ----------- ------------- Cash flows from operating activities: Net loss $(205,421) $(634,821) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 171,204 330,997 Stock issued for services rendered 3,107 20,900 Non cash compensation - 3,696 Issuance of warrants for services rendered - - Amortization of deferred financing costs 10,730 153,868 Amortization of consulting agreement 2,601 - Exchange Loss 20,246 - Settlement with vendors (56,413) - Increase (decrease) from changes in: Inventory 6,689 1,263 Prepaid expenses 21,449 32,920 Other receivables (19,478) 409 Proceeds from Times Square landlord 500,000 - Accounts payable and accrued expenses (209,339) (827,004) Deferred rent (11,097) (4,161) --------- --------- Net cash provided by (used in) operating activities 234,278 (921,933) --------- --------- Cash flows from investing activities: Acquisition of: Capital expenditures - (2,428) Film production costs (7,550) (31,876) Deferred lease costs and other assets - (17,799) --------- --------- Net cash used in investing activities (7,550) (52,103) --------- --------- Cash flows from financing activities: Loans made to officer (35,000) - Proceeds from notes payable - 100,000 Payments made on notes payable (79,128) (404,673) Principal payments under capital lease obligation (100,000) (12,477) --------- --------- Net cash used in financing activities (214,128) (317,150) --------- --------- Net increase (decrease) in cash 12,600 (1,291,186) Cash at beginning of period 705,630 1,395,978 --------- --------- Cash at end of period $ 718,230 $ 104,792 ========= =========
See Accompanying Notes to Unaudited Consolidated Financial Statements 6 CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 & MARCH 31, 1997 ================================================== (UNAUDITED) Supplemental Disclosure of Cash Flow Information Cash paid for income taxes $ 800 $ 800 ======== ======== Cash paid during the period for interest $ 53,167 $ 77,744 ======== ======== Non cash financing activities: Conversion of accounts payable to notes payable - 12,354 As a result of the termination agreement, the Company recorded a loss of $275,548 during the year ended December 31, 1997 related to the impairment of signage and equipment and moving costs (Note 1). The Company received $500,000 upon the execution of the agreement and recorded a receivable of $500,000 for the remaining amount due. A deferred liability of $1,490,915 was recorded in connection with the agreement and $1,652,544 of net leasehold improvements and equipment are included as assets to be disposed of. The Company informed the Landlord on February 26, 1998 that the Company had vacated the premises. Accordingly, the assets to be disposed off, deferred lease costs and related capital lease obligation were netted against the deferred lease termination liability. See Accompanying Notes to Unaudited Consolidated Financial Statements 7 CINEMA RIDE, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES THREE MONTHS ENDED MARCH 31, 1998 ================================== Basis of presentation - --------------------- In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of Cinema Ride, Inc. (the "Company") as of March 31, 1998, and December 31, 1997, and the results of its operations and statements of cash flows for each of the three months ended March 31, 1998, and March 31, 1997, in conformity with generally accepted accounting principles applied on a consistent basis. Unless the context otherwise requires, references to the "Company" in this report refer to Cinema Ride, Inc. and its consolidated subsidiaries. The results of operations for the three months ended March 31, 1998, are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 1998. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying financial statements should be read in conjunction with the Company's audited financial statements and notes thereto incorporated in reference in the 1997 Annual Report on Form 10-KSB. Certain reclassifications were made to the financial statements previously reported to conform with current year presentation. Organization - ------------ The Company was incorporated in Delaware in April 1993. The Company is in the business of developing and operating rides consisting of motion simulator attractions which combine projected three-dimensional action films of approximately four minutes duration with computer-controlled, hydraulically- mobilized seating platforms that are programmed to move in concert with the on- screen action. Each attraction is designed to provide the viewer with a realistic feeling of being a participant in the action on the screen. To date, the Company has completed construction and installation of three facilities. The first facility (the "Las Vegas Facility") commenced operations in October 1994 and is located in the Forum Shops at Caesars (the "Forum Shops"), a high traffic tourist mall which is located between Caesars Palace Hotel & Casino and the Mirage Hotel in Las Vegas, Nevada. The second facility (the " West Edmonton Mall Facility") commenced operations in August 1995 and is located in the West Edmonton Mall, Alberta, Canada. The third facility (the " Times Square Facility") commenced operations in September 1996 and was located in Times Square in New York City, New York. The Times Square Facility was closed during January 1998. The Company's executive offices are located in Studio City, California. Property and equipment - ----------------------- Property and equipment are stated at cost. Depreciation is provided at the time property and equipment is placed in service using the straight-line method over the estimated useful lives of the assets which range from five to ten years. Amortization of tenant improvements is provided using the straight-line method over the lower of the estimated useful lives of the assets or the lease term which range from five to ten years. 8 CINEMA RIDE, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES THREE MONTHS ENDED MARCH 31, 1998 ================================== (CONTINUED) Film Production Costs - --------------------- Film production costs are stated at the lower of amortized cost or market. Upon completion, film production costs are amortized on an individual production basis in the proportion that current gross revenues bear to management's estimate of total gross revenues with such estimates being reviewed at least quarterly. Deferred Lease Costs - -------------------- Deferred lease costs represent amounts paid in connection with the successful negotiation of the Company's leases. Costs are amortized on a straight-line basis over the term of the leases. Pre-opening Costs - ----------------- The Company capitalizes pre-opening costs incurred in connection with potential new locations. These costs are amortized over the twelve months following commencement of operations, or charged to expense when the project is abandoned. At March 31, 1998 and 1997 unamortized pre-opening costs of $ 0 and $171,144 are included in other assets primarily relating to the Times Square Facility. Foreign Currency Translation - ---------------------------- Foreign currency denominated assets and liabilities of subsidiaries with local functional currencies are translated to United States dollars at the prevailing exchange rates. The effects of translation are recorded in the cumulative translation component of shareholder's equity. Income Taxes - ------------ The Company provides for income taxes in accordance with Statement of Financial Accounting Standards 109 (SFAS109"), Accounting for Income Taxes. Deferred income taxes are provided on the difference in earnings determined for tax and financial reporting purposes and result primarily from differences in methods used to amortize production costs. Loss Per Share - -------------- Loss per share is based on the weighted average number of shares of common stock outstanding during the period. For the quarter ended March 31, 1998, common equivalents representing 1,333,500 outstanding stock options and 3,217,209 outstanding warrants are not included since their effect would be anti-dilutive. For the quarter ended March 31, 1997, common stock equivalents representing 689,500 outstanding stock options and 3,793,728 outstanding warrants are not included since their effect would be anti-dilutive. Statement of Cash Flows - ----------------------- For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. 9 Accounting Estimates - -------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards - ------------------------ Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. Early application is permitted. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company adopted this accounting standard on January 1, 1998 and its effects on the financial position, results of operations and earnings per share were immaterial. Statements of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the FASB is effective for financial statements beginning after December 15, 1997. The new standard requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate and their major customers. The Company adopted this accounting standard on January 1, 1998 and its effects on the financial position, results of operations and earnings per share were immaterial. NOTES TO FINANCIAL STATEMENTS NOTE 1. TIMES SQUARE LEASE TERMINATION The Company entered into an agreement dated October 28, 1997 with the landlord of the Times Square Facility to terminate the lease due to the intended demolition of the existing building where the facility was located. The agreement, among other things, required the Company to vacate the premises by February 28, 1998 and waive the security deposit previously made to the landlord. In consideration, the landlord 1) paid the Company $500,000 upon the execution of the agreement, 2) agreed to a rent concession for the period from April 1997 through October 1997, 3) waived its right for all future rents following execution of the agreement to include the months of November 1997 through February 1998, and 4) paid the Company an additional $500,000 upon the timely delivery of possession of the premises to the landlord on or before February 28, 1998. As a result of the termination agreement, the Company recorded a loss of $275,548 during the year ended December 31, 1997 related to the impairment of signage and equipment and moving costs. The Company received $500,000 upon the execution of the agreement and recorded a receivable of $500,000 for the remaining amount due. A deferred liability of $1,490,915 was recorded in connection with the agreement and $1,652,544 of net leasehold improvements and equipment are included as assets to be disposed of. The Company informed the Landlord on February 26, 1998 that the Company had vacated the premises and the remaining $500,000 payment was received on March 5, 1998. 10 NOTE 2 - NOTES PAYABLE NOTE PAYABLE TO BANK On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a $40,328 loan ($55,000 Canadian dollars) from a Canadian bank at prime plus two percent (total interest is 8.5% at March 31, 1998) . The loan has a term of four years requiring monthly payments of approximately $1,027 ($1,400 Canadian dollars) and is guaranteed by the Company. The lender has a first security interest in the equipment and improvements located at the West Edmonton Facility. The loan also restricts transfer of funds to the Company other than amounts in excess of cash flow. The loan may be prepaid at any time without any penalties. As of March 31, 1998 $18,935 remains unpaid on this loan. NOTE PAYABLE TO LENDER On December 31, 1996, the Company closed a financing agreement with Finova Technology Finance, Inc. ( the "Lender") structured as a sale leaseback transaction of certain equipment owed by the Company. Based on the substance of this transaction, this financing agreement was accounted for as a note payable for financial reporting purposes. The gross loan amount was for $1,575,027 to be paid over a four year term at $40,903 per month with a balloon payment of $157,503. The loan bears interest at an annual rate of 15.7%. The financing agreement requires the Company to repurchase the equipment at the end of the lease for $1. In connection with obtaining the financing, the Lender required the Company to raise a minimum of $500,000 through a combination of equity, subordinated debt, or conversion to equity of existing notes/liabilities. As of May 11, 1998, the Company has issued 444,285 shares of the Company's common stock to various vendors and 250,000 shares to existing note holders in lieu of amounts owed by the Company, enabling the Company to meet the Lender's requirement. The Company also issued 100,000 warrants to the Lender at an exercise price of $2.00 per share, and an aggregate of 265,643 warrants to the brokers who arranged the financing at an exercise price of $.41 per share representing approximately 110% of the market value at the closing date of the financing. During the quarter ended March 31, 1997, the Company received the remaining $100,000 of this loan which was held by the Lender pending the Company's meeting all of the Lender's requirements. As of March 31, 1998 $1,140,465 remains unpaid on this loan. NOTE 3. STOCK TRANSACTIONS During the quarter ended March 31, 1998, the Company issued 51,787 shares to its Chief Financial Officer. The Company recorded the then fair market value of the shares as additional compensation to the officer. NOTE 4. CAPITAL LEASE OBLIGATION Certain disputes have arisen with respect to the obligation to the lessor of the sign at the Las Vegas Facility, and, commencing with the lease payment for the month of April 1997, the Company has withheld making payments. During March 1998, the Company reached an agreement with the lessor of the sign to amend the lease agreement to extend the term of the lease by eleven months with the first payment becoming due on March 1, 1998. During the quarter ended June 30, 1996, the Company entered into a lease agreement for a sign to be installed at the Times Square Facility. The lease term was for sixty months commencing the first month following installation of the sign. Certain disputes have arisen with respect to the obligation to the lessor of the sign, and, commencing with the lease payment for the month of April 1997, the Company has withheld 11 making payments. During March 1998, the Company reached an agreement with the lessor of the sign whereby both parties agreed to terminate the lease and for the Company to purchase the sign for $100,000 in cash. In return, the lessor agreed to return to the Company 93,482 shares of the Company's common stock, which were previously issued to the lessor during December 1996. NOTE 5. RECEIVABLE FROM OFFICERS AND CONSULTING AGREEMENT During the year ended December 31, 1995, the Company made loans to two of its officers in the amount of $50,000. The loans bear interest at a rate of 8% per year and were due on the earlier of June 30, 1998 or six months after the officer ceases to be an employee of the Company. Principal payments of $5,000 per loan were due on June 30, 1996 and June 30, 1997, with the balance due on June 30, 1998. Each note was secured by the higher of 40,000 shares or the number of shares equivalent to the unpaid value of the note. On February 1, 1997, the Company's Chief Operating Officer resigned and agreed to be available to the Company on a consulting basis for the period between February 1, 1996 and September 30, 1997. Additionally, he agreed to be available to the Company on a limited consulting basis for the five years following September 30, 1997 in consideration for the release from one fifth each year of his balance on his loan to the Company and the waiver of accrued and future interest on the unpaid balance. The Company is amortizing the balance of the consulting agreement over the period of the consulting contract. As such, $51,021 was transferred from receivables from officers and is classified as consulting agreement. In January 1998, the Company made a loan of $35,000 to its Chief Executive Officer. The loan bears interest at a rate of 8.5% per year and principal and interest are due at the earlier of (1) June 30, 2001 or (2) six months after the officer ceases to be an employee. This loan is secured by shares equivalent to the unpaid value of the note. The balance of the remaining loan from officer at March 31, 1998 is $49,418, which includes $9,418 of accrued interest ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. ------------------------------------------------------------ Although the Company was formed in April 1993, operations of the Company did not commence until October 1994 when the Las Vegas Facility was opened. The Company opened its other locations, the West Edmonton Mall Facility and the Times Square Facility, in August 1995 and September 1996 respectively. The Company closed the Times Square Facility in January 1998 and vacated the Facility on February 26, 1998. RESULTS OF OPERATIONS - --------------------- QUARTER ENDED MARCH 31, 1998 VS. QUARTER ENDED MARCH 31, 1997: Revenues decreased by 28% or $246,731 from $869,795 in 1997 to $623,064 in 1998. The decrease is mainly due to a decrease of $277,666 in revenues from the Times Square Facility which was closed in January 1998. This decrease was partially offset by an increase in revenues at the West Edmonton Mall Facility by 62% or approximately $25,000 from approximately $41,000 in 1997 to approximately $66,000 in 1998. Selling, general and administrative expenses decreased by 31% or $295,878 from $949,812 in 1997 to $653,934 in 1998. This decrease is mainly due to 1) a decrease of approximately $254,000 in expenses from the Times Square Facility which was closed in January 1998, and 2) a decrease in corporate expenses of approximately $43,000 mainly due to decreases in salaries . 12 Depreciation and amortization decreased by 48% or $159,793 from $330,997 in 1997 to $171,204 in 1998 mainly due to a decrease of approximately $150,074 in depreciation and amortization from the Times Square Facility which was closed in January 1998. Other income increased by $56,413 in 1998 due to settlement with vendors on disputed payables. Interest expense decreased by 70% or $159,432 from $226,486 in 1997 to $67,054 in 1998 mostly due to the Company's write off of $146,103 in deferred interest in 1997 relating to the issuance of common stock to note holders in 1996 and the subsequent repayment of these notes in January 1997. QUARTER ENDED MARCH 31, 1997 VS. QUARTER ENDED MARCH 31, 1996: Revenues increased by 43% or $260,050 from $609,745 in 1996 to $869,795 in 1997. The increase is due to the opening of the Times Square Facility in September 1996 which contributed $347,382 in revenues in 1997 which was partially offset by 1) a decrease in revenues at the Las Vegas Facility by 13% or $74,056 from $553,792 in 1996 to $479,736 in 1997 which management believes is due to lower attendance at the Forum Shops and reduced advertising spending, and 2) a decrease in revenues at the West Edmonton Mall Facility by 23% or approximately $13,000 from approximately $56,000 in 1996 to approximately $43,000 in 1997. In addition, the Company raised the price of a single ticket to seven dollars from six dollars. The average ticket price remained under four dollars due to discounts offered through multiple purchases of tickets. Management believes that the trend at the Las Vegas Facility is expected to continue but could be offset by the Company's installation of a ticket booth at the main level of the Forum Shops during the Summer and by the opening of the new expansion of the Forum Shops scheduled in September 1997. Selling, general and administrative expenses increased by 40% or $272,599 from $677,213 in 1996 to $949,812 in 1997. This increase is mainly due to an increase in overall expenses of approximately $287,500 relating to the new Times Square Facility which was opened in September 1996 and was fully operational in the first quarter of 1997, which was partially offset by decreases in expenses at the Las Vegas and West Edmonton Mall Facilities. Depreciation and amortization increased by 37% or approximately $89,000 from $242,103 in 1996 to $330,997 in 1997 due to 1) the new Times Square Facility which contributed to an increase of approximately $181,332 in 1997 which was partially offset by a decrease of $102,000 relating to the write off of certain assets in 1996. Interest expense increased by $219,625 from $6,861 in 1996 to $226,486 in 1997 mostly due to 1) the Company's write off of $146,103 in deferred interest relating to the issuance of common stock to note holders and the subsequent repayment of these notes in January 1997, and 2) the Company incurring approximately $57,700 in interest on the loan from lender in 1997. In addition, in connection with the issuance of the warrants relating to the Company's financing during December 1996, the Company incurred, based on a valuation of these warrants which were issued to the Lender and the brokers who arranged the financing, $47,498 as deferred financing costs which is amortized over the life of the loan as interest expense. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided by operating activities was $234,278 during the quarter ended March 31, 1998, as compared to the cash used in operating activities of $921,933 for the same period during the prior year. The increase of $1,156,211 was primarily due to 1) a decrease in losses for the quarter ended March 31, 1998 by $429,400, 2) a decrease in accounts payable and accrued expenses of $617,665, and 3) an increase in proceeds from the Times Square landlord of $500,000. This increase was partially offset by 1) a decrease in depreciation and amortization 13 of $159,793, 2) a decrease in amortization of deferred financing costs of $143,138, and 3) an increase in settlement with vendors of $56,413. Net cash used in investing activities decreased by 86% or $44,553, from $52,103 in 1997 to $7,550 in 1998. The decrease is primarily due to expenditures for film production costs incurred in 1997. Net cash used in financing activities decreased by 32% or $103,022 from $317,150 in 1997 to $214,128 in 1998. The decrease is primarily due to payments made on notes payable in 1997 which was partially offset by the receipt of $100,000 in 1997 that was held by the Lender. The Company has relied on the proceeds of sales of Common Stock, Redeemable Warrants, loans and equipment leasing to provide it with the cash necessary to develop its facilities and ride films and to operate its business. On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a $40,328 loan ($55,000 Canadian dollars) from a Canadian bank at prime plus two percent (total interest is 8.5% at March 31, 1998). The loan has a term of four years requiring monthly payments of approximately $1,027 ($1,400 Canadian dollars) and is guaranteed by the Company. The lender has a first security interest in the equipment and improvements located at the West Edmonton Facility. The loan also restricts transfer of funds to the Company other than amounts in excess of cash flow. The loan may be prepaid at any time without any penalties. As of March 31, 1998, $18,935 remains unpaid on this loan. On December 31, 1996, the Company closed a financing agreement with Finova Technology Finance, Inc. ( the "Lender") structured as a sale leaseback transaction of certain equipment owed by the Company. Based on the substance of this transaction, this financing agreement was accounted for as a note payable for financial reporting purposes. The gross loan amount was for $1,575,027 to be paid over a four year term at $40,903 per month with a balloon payment of $157,503. The loan bears interest at an annual rate of 15.7%. The financing agreement requires the Company to repurchase the equipment at the end of the lease for $1. In connection with obtaining the financing, the Lender required the Company to raise a minimum of $500,000 through a combination of equity, subordinated debt, or conversion to equity of existing notes/liabilities. The Company has issued 444,285 shares of the Company's common stock to various vendors and 250,000 shares to existing note holders in lieu of amounts owed by the Company, enabling the Company to meet the Lender's requirement. The Company also issued 100,000 warrants to the Lender at an exercise price of $2.00 per share, and an aggregate of 265,643 warrants to the brokers who arranged the financing at an exercise price of $.41 per share representing approximately 110% of the market value at the closing date of the financing. As of March 31, 1998, the Company had a positive working capital of $116,544. The Company's cash and cash equivalents as of March 31, 1998 were $718,230 as compared to $705,630 at December 31, 1997. In order for the Company to continue its operations as presently constituted and to fulfill its business plan described below, the Company must obtain additional working capital either in the form of debt, equity, or a combination thereof. No assurance can be given, however, that the Company will be successful in raising capital. Additionally, the Company has and is continuing to take steps to reduce its expenses without materially impacting its operations. COMPANY OUTLOOK: IDENTIFY AND DEVELOP NEW SITES FOR ATTRACTIONS The Company is currently seeking additional locations for attractions. In general, the Company will attempt to locate sites for its attractions (i) which are in large metropolitan areas or which are at tourist destinations which attract more than three million persons per year, (ii) at which the Company can lease high-profile, high-traffic space 14 at a reasonable cost, (iii) which are in areas with a large number of permanent residents and which do not have extreme seasonal attendance patterns, and (iv) which are at or near other complementary tourist attractions. The Company believes that each new attraction will take approximately four to six months from lease execution to commencement of operations. Total cost of developing new attractions, including construction, fixtures, equipment and start-up costs after completion are estimated to be at least $1,250,000 per two- capsule site. These costs will vary depending on the leased space, the scope of any tenant improvements required to be performed by the Company in connection with leasing a given location and the number of capsules installed, as well as the size and location of the planned attraction. The Company anticipates that three more locations will be added in the next two years. Accordingly, the Company expects to spend approximately at least an additional $3,750,000 on the acquisition and installation of three more locations in the next two years. In addition to the cost of the equipment necessary to establish a new attraction location, the Company expects to add approximately twenty employees per each additional two-capsule location that it owns and operates. However, the Company currently has five capsules in its inventory which are available for installation at future sites which should reduce the capital required to open at least the next two facilities. In order to reduce the out-of-pocket costs in the development of attractions, the Company may also explore joint venture arrangements with third parties and with existing entertainment venues. The Company and its co-venturer would then divide the profits, if any, from the attraction based on their respective contributions to the venture. SIMULATOR SALES, JOINT VENTURES, AND RIDE FILM LEASING The Company intends to pursue the sale or joint venturing of simulator equipment to property owners and businesses that wish to operate attractions of their own. The sale of simulators to third parties would provide the Company with an additional source of revenues and profits with less risk than is associated with owning and operating systems. Additional revenues would be generated from the leasing of the Company's library of ride films to purchasers of the Company's simulators or to operators of already existing simulators. The Company does not intend to sell simulators or license ride films into markets in which it expects to operate its own attractions. It is expected that the Company's management will continue to be responsible for the marketing of the Company's simulators and ride films for sale and/or leasing. However, the Company may retain the services of outside or in-house sales representatives to locate potential purchasers of simulators and licensees of ride films. SEASONALITY OF BUSINESS Because of the seasonal nature of tourist traffic, attendance patterns at attractions may vary. The degree of this seasonality varies among attractions depending on the nature of tourist and local traffic patterns at a given location as well as the nature of entertainment alternatives available to audiences. The Company expects that attendance at its facilities to be the highest in June through September (the height of the tourist season) and lowest during January and February. The West Edmonton Mall Facility is more effected by seasonality as compared to the Las Vegas Facility due to the extreme weather conditions during the Winter months in Alberta, Canada. Similarly, the Times Square Facility was affected by seasonality during the slower Winter months. As a result, the Company's results of operations at its facilities depends upon sales generated from the peak tourist periods and any significant decrease in sales for such periods could have a material adverse effect upon the Company's operations. 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- The Company is not currently involved in any legal proceedings that it believes could have, either individually or in the aggregate, a material adverse effect on its business or financial condition. ITEM 5. OTHER INFORMATION ----------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) EXHIBITS The following exhibits are submitted herewith: NUMBER DESCRIPTION ------- ----------- 27 Financial Data Schedule (b) REPORTS ON FORM 8-K The Company filed no reports on From 8-K during the quarter ended March 31, 1998. 16 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINEMA RIDE, INC. BY: /s/ MITCH FRANCIS ---------------------------------- MITCH FRANCIS, PRESIDENT SIGNATURE DATE - --------- ---- /s/ MITCH FRANCIS May 11, 1998 - -------------------- ------------ Mitch Francis Chairman of the Board, President, Chief Executive Officer and Director (principal executive officer) /s/ TOUFIC R. BASSIL May 11, 1998 - ---------------------- ------------ Toufic R. Bassil Chief Financial Officer, Secretary and Treasurer (principal financial officer, principal accounting officer). 17
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 718,230 0 18,874 0 14,925 800,181 4,597,397 1,128,137 5,167,124 683,637 0 0 0 58,546 3,407,483 5,167,124 623,064 623,064 825,138 825,138 0 0 67,054 (205,421) 0 0 0 0 0 (634,821) (.11) 0
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